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Concerns When “Showing Agents” Are Not Affiliated with Your Brokerage

By Len Elder, Director of Education and Licensing Division

A current trend involves listing and buyer agents hiring licensees not affiliated with their brokerage to show a property to a buyer. Sometimes the showing agents are hired and paid directly by brokers affiliated with a firm other than the listing or buyer agent’s firm. Sometimes showing companies such as Showami.com, ShowforME.com, or Instashowing.com are used.

There are a number of concerns for the brokers involved on both sides of this practice when the brokers are not affiliated with the same firm. Here are the top ten:

  1. What is the agency role of the showing broker? The showing agents are probably not operating under a valid existing agency agreement. They have not been hired by or authorized to work on behalf of the buyer. The buyer agency agreement (whether oral or written) is with the buyer agent’s affiliated firm of which the showing agent is not a part. Because all representation in North Carolina must be by express agreement, such relationships create compliance issues with the provisions of Rule 58A .0104(a) of the North Carolina Real Estate Commission rules.

Some brokers have suggested that the showing agent is acting as a seller subagent. We previously provided a relevant eBulletin article on this matter, Getting Agency Representation Right: Clarifying the Practice of Seller Subagency. It is questionable whether the showing brokers have met the appropriate requirements to legally practice subagency. Even assuming the showing agent is a subagent of the seller, has the buyer been advised that everything the buyer said during the showing would have to be reported back to the listing agent and/or seller? We doubt that showing agents are operating in this fashion.

Commission Rule 58A .0104(c) requires that brokers in every real estate sales transaction at first substantial contact with a prospective buyer or seller provide and review the Working with Real Estate Agents Disclosure. Brokers have never been able to assert that they are exempt from agency disclosure because an agent with a different firm already provided the disclosure to the consumer. In instances where the showing agent is not affiliated with either the listing firm or the firm representing the buyer, it is imperative that the showing agent comply with the agency disclosure requirement. This is particularly true when the situation that arises creates confusion with the buyer about the role of the showing agent.

To prevent the buyer from employing the showing agent rather than continuing to work with the hiring broker, some showing agents are being required to enter into restrictive agreements. As an example, some of the companies that provide showing agents forbid the showing agent from entering into an agency relationship with the buyer and require that the showing broker respect the presumed exclusive nature of the buyer’s relationship with the hiring broker.

In North Carolina, the only way that brokers can create an exclusive buyer agency agreement is to have a written agreement. Many brokers in NC initially work with buyers on an oral basis. This is permitted under the rule, but Rule 58A .0104(a) prohibits any broker working under an oral agency agreement from binding the buyer for a period of time or restricting the buyer’s right to work with other agents. Brokers cannot mutually agree with each other, or with an outside third party, to act in a way that is contrary to the Commission’s rules.

Some showing agent agreements actually contain language that prohibit the showing agent from making any comments, disclosures, or representations to the buyer about material defects. Brokers cannot by private agreement with each other or with an outside company limit their fiduciary obligations required by state law.

It appears that in many transactions, a broker from one firm directly pays either a set amount or an hourly amount to a broker from another firm. Depending upon the particular facts of the transaction, such an arrangement may be in violation of Commission Rule A .0120(b) which states: An affiliated broker shall not be paid a commission or referral fee directly by anyone other than their current BIC or the person who served as their BIC at the time of the transaction. For brokers to comply with the Rule, the fees earned for providing brokerage services must be distributed through the showing broker’s BICs.

Commission Rule 58A .0109 prohibits a broker from paying an unlicensed person or entity compensation for brokerage services. When a broker enters into an agreement to pay a third party company fees to retain a showing agent, that third party company must be a licensed brokerage. Showing fees are compensation for brokerage activity, because NC rules and statutes prevent unlicensed people from showing the property of another for sale for compensation. Even unlicensed assistants in direct employ of a licensed brokerage cannot show property in sales transactions. Is the third party company that the broker is paying to obtain showing services properly licensed in North Carolina? If not, the broker is probably violating Commission Rules.

Because showing fees are compensation for brokerage services, Commission Rule 58A .0109 also requires full and complete disclosure to, and consent of, the principals in the transaction. This means that the showing agent would need proof of disclosure and consent from one of the principals in the transaction prior to receiving any compensation for showing a property. Has the showing agent provided this disclosure and obtained this consent?

Most Errors & Omissions insurance policies do not extend coverage to brokers who are not affiliated with the insured brokerage. Likewise, most policies do not provide coverage to a broker when they are working outside of the scope of their affiliated brokerage. If there is an injury to a buyer, damage to the property, breakage of an item, water damage from a faucet left on, or theft because the property was not secured, there would likely be no E&O coverage. Brokers and Brokers-in-Charge are urged to carefully review their E&O policies to better understand the liability of using a non-affiliated broker as a showing agent.

Commission Rule 58A .0506(a) requires that provisional brokers be affiliated with a Broker-in-Charge in order for their license to be on active status and that they be directly supervised by the BIC with whom they are affiliated. With the limited exception of co-listing and co-selling in a team scenario, provisional brokers are prohibited from dual affiliation. This means that they cannot provide brokerage services outside of BIC supervision and their affiliation.

  1.  Are the brokers involved in the showings affiliating themselves with an unlicensed entity in order to provide brokerage services?

We already know that the showing of properties belonging to another for compensation is a licensed brokerage activity. Before brokers affiliate themselves with an entity that is going to pay them to show homes, brokers should make certain that the entity with whom they are affiliating is licensed. All entities in North Carolina that engage in brokerage services are required to comply with the firm licensing provisions of Commission Rule 58A. 0502.

There are a lot of pitfalls and liabilities that can be created when a broker uses a showing agent that is not affiliated with their brokerage. Brokers and Brokers-in-Charge are urged to carefully consider all of the above issues to ensure compliance with North Carolina statutes and Commission rules. Brokers-in-Charge are also urged to take the time and thought necessary to create written policies and procedures for their office regarding the use of non-affiliated showing agents.

Pitfalls in Property Management

This article will outline several of the common pitfalls that brokers may face when offering property management services.

Material Fact Disclosures

One of the biggest misunderstandings in property management is the idea that leasing is not the same as buying or selling real estate and, therefore, the same rules about material facts do not apply. This is false. Property managers have the same duty to discover and disclose material facts to potential tenants as do brokers involved in a sales transaction. Material facts are defined as:  information that could affect a reasonable person’s decision to buy, sell or LEASE.

Some common examples of issues that arise as material facts in a sales and/or lease transaction are:

  1. Septic systems. Are you advertising a home with a 3 bedroom septic permit with more bedrooms than the permit allows? What does the local municipality set as the occupancy limit?
  2. Disclosing HOA rules and covenants. Can a tenant park his work truck/van that has the business advertised on that vehicle? Can a tenant park on the street? Can a tenant install a satellite dish or have an above ground pool? Are there restrictions on the number and/or type of pets? Are there rental restrictions on the property affecting short term rentals like AirBnB & VRBO, or long term rentals?
  3. Are there flooding issues in the yard when it rains? Have there been structural issues in the home (e.g. moisture in the crawlspace, termites, truss repairs, fire)?
  4. Are you advertising the availability of high speed or fiber internet without having confirmed this with a provider?

Misrepresentation of a material fact can lead to a finding that a property manager has violated multiple sections of the License Law (NCGS § 93A-6) and can lead to disciplinary action.

Security Deposits

Tenant security deposits continue to be an issue for property managers who must be knowledgeable on the proper use of the deposit in order to make proper and timely decisions regarding disbursement of the deposit. The Tenant Security Deposit Act in NCGS § 42-51 outlines the permitted uses of the deposit, including, among other items, damage to the property, costs of re-renting a property if the tenant breaks the lease, and costs of storing a tenants belongings after eviction. NCGS 42-52 specifically states that normal wear and tear is not damage.

The question often arises about whether a lease provision will supersede GS 42-51. If the lease states, for example, upon move out the tenant must mow the lawn, replace all air filters and burned out bulbs, and clean the unit or the landlord will charge this against the deposit, can the deposit be used to cover these costs? As noted above, these items would generally be considered normal wear and tear rather than “damage” and therefore cannot be deducted from the security deposit. Whether these costs constitute a breach of the lease is a civil matter and the landlord or property manager should go to court to recover costs for items covered in the lease which are not specifically allowed in NCGS 42-51.   

So what should a property manager do if the landlord is insistent on charging for items against the deposit that the manager knows are not permitted? The manager should document their conversations with the landlord-client and may send the landlord the deposit. They must also inform the tenant that the landlord is in possession of the deposit and the disposition of the deposit is between the tenant and the landlord at this point. 

Keep in mind, however, that NCGS § 42-55 provides that the willful failure by a landlord to comply with the deposit notice requirements of the Tenant Security Deposit Act VOIDS the landlord’s right to retain any portion of the tenant security deposit. A property manager whose landlord-client insists on retaining tenant security deposits for “damages” about which the manager disagrees may want to consider whether they should retain that landlord-client in future.   

Communication

Problems of communications between property managers and tenants or landlords remain the leading cause of complaints filed against property managers. One of the most common issues is the work order request. Most Property Management Agreements (PMAs) have some language that allows a property manager to complete work that costs less than a certain dollar amount and requires landlord approval for all work over that amount. However, a property manager still has a duty to disclose to the landlord all repairs or other work that is done to their property. The property manager must save all receipts for such work and must disclose to the landlord and get consent for any fees charged by the property manager that are in addition to the vendor cost.

The biggest frustration tenants face is not knowing what is going on. The manager may be waiting for a required approval for work from a landlord or they may be getting multiple bids from vendors. Maybe the vendor is waiting for parts to come in. Whatever the delay, giving updates to the tenant and explaining the process would help them understand that their issue is not being ignored. For tenants who are waiting for something to be fixed so they can fully enjoy the home, it is a big deal. Communication on both ends is key!

Reminder: It is HERE!

Did you know that the 2023 edition of the North Carolina Real Estate Manual is now available for purchase in digital and print versions? This Manual includes assessments, revised comic strips that display agency relationships between brokers and consumers, and a database of sample contract forms.

The digital version of the Manual was first introduced by the Commission in 2019 and is routinely updated when there are changes in License Law and Commission rules.

Licensees who wish to access the digital version of the Manual must register for a subscription. A one-time $25.00 fee provides two full years of access.  

To access the digital version of the Manual:

  1. go to www.ncrec.gov;
  2. click on Publications;
  3. click on NC Real Estate Manual; and
  4. click Register for Digital Subscription.

NOTE: Once a licensee has registered for a digital subscription, they automatically receive access to the Manual.

To access the digital version of the Manual after purchase:

  1. go to https://rem.ncrec.gov;
  2. click on Sign In;
  3. enter your username and password that you used to register for the Manual; and
  4. click on the horizontal bars in the upper left to access the chapters.

Licensees who wish to order a print version of the Manual must pay $40.00.

To order a print copy of the 2023 edition of the Manual:

  1. go to www.ncrec.gov;
  2. click on Publications;
  3. click on NC Real Estate Manual; and
  4. click Order Here; and
  5. click NC Real Estate Manual 2023 edition.

NOTE: Per Rule 58H. 0205(b), Postlicensing courses shall utilize the current edition of the North Carolina Real Estate Manual. For more information about the NC Real Estate Manual, contact the Education and Licensing Division at LS@ncrec.gov.

Staff Appearances

Brian Heath, Consumer Protection Officer, spoke at the eXp Realty meeting on May 3.

Bruce Rinne, Information Officer, spoke at the Premier Sotheby’s International Realty meeting on May 3.

Charlie Moody, Assistant Director of Regulatory Affairs, spoke at the RRAR Realtor Giving Network meeting on May 5.

Sheryl Graham, Consumer Protection Officer, spoke at the Goldsboro Wayne County Association of Realtors meeting on May 17.

Minerva Mims, Diversity Equity Inclusion Officer, spoke at the Raleigh Regional Association of REALTORS meeting on May 18.

Diversity, Equity, and Inclusion Updates

Interested in learning more about the North Carolina Real Estate Commission’s diversity, equity, and inclusion (DEI) programs and initiatives? Have a program that you’d like the North Carolina Real Estate Commission’s DEI Officer to present at? Using the request for program presenter form, on the Commission’s website, you may request to have the Commission’s DEI Officer present at your event. There are no fees to have the Commission’s DEI officer present, nor are gifts expected or accepted. Click here to learn more about the parameters for requesting the Commission’s DEI Officer as a presenter and to submit the request form.

Employment Opportunities Available

Are you interested in joining the staff of the North Carolina Real Estate Commission? From time to time, employment opportunities become available. They are posted on the Commission’s website under the “About Us” tab. Click here for more info.

Disciplinary Actions

DONALD CATO (GREENSBORO) – The Commission accepted the voluntary surrender of the broker license of Cato effective May 17, 2023. The Commission dismissed without prejudice allegations that Cato violated provisions of the Real Estate License Law and Commission rules. Cato neither admitted nor denied misconduct.

ERICK STEPHENS (GARNER) – The Commission accepted the voluntary surrender of the broker license of Stephens effective May 17, 2023. The Commission dismissed without prejudice allegations that Stephens violated provisions of the Real Estate License Law and Commission rules. Stephens neither admitted nor denied misconduct.

RICHARD T HAYES (WILMINGTON) – By Consent, the Commission suspended the broker license of Hayes for a period of 12 months, effective May 15, 2023, with the suspension to be stayed effective November 15, 2023. The Commission found that, while acting as a licensed attorney, Hayes was disciplined by the North Carolina State Bar in 2005 and in 2009. Hayes was also convicted of one count of misdemeanor failure to pay income tax in 2006 in Wake County District Court. Hayes failed to report the disciplinary actions and the criminal conviction to the Commission within 60 days as required.

JAIME LEE YOUNG (FAYETTEVILLE) – By Consent, the Commission suspended the broker license of Young for a period of 18 months, effective April 1, 2023. The Commission then stayed the suspension in its entirety. The Commission found that in May 2022, Young was the listing agent for the sale of a residential property. The sellers of the subject property accepted an offer to purchase and contract, a term of which required the payment of a due diligence fee by the buyers.  The buyers did not immediately remit this fee. Young advised the sellers that due to the failure of the buyers to immediately remit this fee, the contract was not fully executed. Upon this advice, and without properly terminating, the sellers accepted another offer to purchase.

HALEY DONIELLE KERNELLS (FAYETTEVILLE) – By Consent, the Commission suspended the broker license of Kernells for a period of 18 months, effective April 1, 2023. The Commission then stayed the suspension in its entirety. The Commission found that in May 2022, when Kernells was designated as broker-in-charge, an affiliated broker listed a home for sale. An offer to purchase was accepted, requiring the payment of a due diligence fee, which the buyers did not immediately remit. Kernells advised the affiliated broker that due to the failure of the buyers to immediately remit the due diligence fee, the contract was not fully executed. Upon this advice, and without properly terminating, the sellers accepted another offer to purchase. 

STEPHANIE WADE GODWIN (SANFORD) – By Consent, the Commission suspended the broker license of Godwin for a period of 12 months, effective March 1, 2023. The Commission then stayed the suspension after 1 month served. The Commission found that in December 2022, Godwin listed the subject property for sale. Godwin was aware that the subject property had been completely remodeled by the seller, who was an investor. Godwin failed to discover and disclose that no permits had been obtained for the renovations to the subject property.

FRANCIS XAVIER RECK (WILMINGTON) – By Consent, the Commission suspended the broker license of Reck for a period of 12 months, effective April 1, 2023. The Commission then stayed the suspension in its entirety. The Commission found that Reck was the listing agent for a residential property. A buyer submitted an offer which included an escalation clause. The sellers received an additional offer. Thereafter, Reck advised the buyers’ agent that the sellers had received another offer.  The sellers then countered the first buyers’ offer with an increased purchase price, pursuant to the escalation clause. The first buyers requested proof of the second offer and Reck revealed the terms of the second offer without first receiving permission from the offeror. 

JUDITH HIGGINS WAGNER (BOONE) – By Consent, the Commission suspended the broker license of Wagner for a period of 12 months, effective May 1, 2023. The Commission then stayed the suspension in its entirety. The Commission found that in February 2022, Wagner entered into a listing agreement for a residential property. Wagner falsely advertised the property as containing “HSpeed Internet – DSL.” Wagner failed to verify that the property had such internet available and accessible.

ALLAN M WAGNER (BOONE) – By Consent, the Commission suspended the broker license of Wagner for a period of 12 months, effective May 1, 2023. The Commission then stayed the suspension in its entirety. The Commission found that in February 2022, Wagner entered into a listing agreement for a residential property. Wagner advertised the property as containing “HSpeed Internet – DSL.” Wagner failed to verify that the property had such internet available and accessible.

RHONDA LYNNE ADAMS (FAYETTVILLE) – By Consent, the Commission reprimanded Adams, effective April 1, 2023. The Commission found that Adams was the broker-in-charge of another broker during a sales transaction. The broker represented a buyer client to whom he made a promise to credit $10,000. A credit of $5,000 was noted on the closing disclosure of the transaction and the broker agreed to credit the remaining $5,000 to their client following future closings. After the subject transaction closed, Adams became aware the broker had made the promise but did not ensure that they fulfilled the promise.

EXP REALTY LLC (FAYETTVILLE) – By Consent, the Commission reprimanded EXP Realty LLC, effective April 1, 2023. The Commission found that an affiliated broker of the Firm represented a buyer-client to whom they promised to rebate $10,000 – half at the time of closing and half upon the close of other transactions. After the close of the first transaction, the broker-in-charge of the Firm became aware of the promise made by the broker but did not ensure that they paid the remaining $5,000 as promised.

Current Stats: Monthly Licensee Count as of May 1, 2023

The April Outreach Commission Meeting in Edenton Was a Success

The Commission held its April 2023 meeting in Edenton, NC at the Historic 1767 Chowan County Courthouse as part of its outreach initiative. The Commission welcomed local brokers and the public to the meeting. The Commission held two hearings in the historic courtroom, a rule-making hearing and a disciplinary hearing. You can view past meetings, and a schedule of the upcoming meetings, on the Commission’s website.

Renewing Your Real Estate License is a SERIOUS Matter!

Are you a Qualifying Broker (QB)? Did you know that QBs are responsible for renewing the firm license?  Are you a Broker-in-Charge (BIC)? Are you aware that a BIC’s failure to renew their broker license or complete the appropriate continuing education (CE) can adversely affect their affiliated brokers?

Every year during license renewal, a brokerage is adversely impacted due to the QB or BIC failing to renew their individual broker license, firm license, or complete the appropriate CE, respectively.

Let’s discuss some of the consequences of a QB or BIC failing to renew their broker and/or firm licenses and complete the appropriate CE, under Rules 58A .0503 and .1702.

Qualifying Brokers

Question: What if the QB fails to renew their broker license?

Answer: If a QB fails to renew their broker license during May 15-June 30, the firm’s license will go on inactive status even if the firm’s license has properly been renewed. The firm’s license will go on inactive status because the QB’s broker license is expired and the firm must have an active QB to conduct brokerage activity in North Carolina.

Question: What if the QB fails to take the appropriate CE?

Answer: If a QB fails to take the appropriate CE according to their license status, the firm’s license will go inactive. The firm’s license will be inactive because the QB’s broker license is inactive and the firm must have an active QB to conduct brokerage activity in North Carolina.

Question: What if the QB renews their license but does not renew the license of the firm?

Answer: If the QB renews their license, but not the firm’s license, the firm’s license expires effective midnight of June 30.  If the firm’s license is expired, the affiliated brokers must cease all brokerage activity. Also, all of the agency agreements are immediately at risk, since the brokerage can no longer legally fulfill its contractual obligations.

Question: What if the QB quickly renews their own license and that of the firm – does everything go back to normal?

Answer: Once the firm license is reinstated, as well as the QB’s, the QB must re-designate a BIC for each office of the firm; then, the BIC(s) must re-affiliate all the brokers with their brokerage office using Form 2.08, License Activation and Affiliation.

Brokers-in-Charge

Question: What if the BIC fails to renew their broker license?

Answer: If a BIC fails to renew their broker license during May 15-June 30, the BICs license will expire. Due to the BIC’s license expiration, the affiliated brokers will not be able to conduct brokerage activity legally. Affiliated full brokers will remain on active status at their home address but may not list property, advertise, or collect trust monies, and provisional brokers will be marked inactive.

Question: What if the BIC fails to take the appropriate CE?

Answer: If a BIC fails to take the appropriate CE according to their license status, the BIC’s license will go inactive. The BIC’s license will be inactive; therefore, the affiliated brokers will not be allowed to conduct brokerage activity. Although affiliated full brokers will remain on active status at their home address, provisional brokers will be marked inactive. In order for the BIC to regain BIC Eligible status, they must complete all of their CE requirements, including the current year’s CE and curing the CE deficiency and then take the 12-hour BIC course if it was not completed within the previous 12 months. Additionally, BICs must also submit Form 2.25 to Request BIC Eligible Status and/or Broker-in-Charge Designation after the completion of the 12-hour BIC course, if they had to take it. 

NOTE: BICs must also consider that if they lose their BIC status, they might not qualify for BIC Eligible status in the future. They may not qualify because they do not have 2 years of full-time brokerage experience within the previous 5 years and/or they may have a pending complaint.

Lastly, once a BIC has completed the required CE, regained BIC Eligible Status and designated themselves as BIC of the brokerage, they must re-affiliate all brokers again with the brokerage using Form 2.08, License Activation and Affiliation.

Bottom Line

The consequences of a QB, BIC, or firm failing to renew have significant repercussions and require a lot of paperwork and potentially, education, to get back on track. All of this can be avoided if the QB renews their individual broker license and the firm’s license, and the BIC renews their broker license between May 15-June 30 of each year, and completes their required CE by June 10.